Citic Pacific’s finances will be stabilized thanks to support from its parent, the firm’s executive director Harry Fan told the Singapore newspaper Singtao Daily.
Yet the nervousness continues. Some market players argue that the government should intervene to prevent systemic problems. Citic Pacific’s debt is spread among several banks that could be at risk from repayment woes. And other Chinese companies were apparently burned by foreign exchange derivatives.
As a matter of fact, some market players say Citic Group should restructure Citic Pacific. If that happens, the parent would negotiate with trading parties and even litigate to minimize losses. Additional shares could be issued as well, although Citic’s current shareholders may object.
As the end of the day, however, even if Citic Pacific gets through this difficult time, litigation will follow. The Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange have announced an investigation of the Citic Pacific case to see if trading rules were broken.
Hong Kong lawyer Jin Tao told Caijing the regulatory investigation should focus on whether Citic Pacific’s information disclosure is false or misleading. He was referring to the firm’s September 7 statement that it saw potential risk in its foreign exchange forward contracts and on September 9 said in a public statement that the “finance and trading have no significant negative” impact.
Regulators also will seek to determine whether any insider trading occurred. This suspicion is based on the fact that the largest two shareholders frequently increased their stakes before the derivative losses occur but suddenly stopped increase in early September.
Additionally, regulators say, traders at brokerage firms should have known that huge losses were inevitable. Thus, insiders likely benefited.
To prevent any conflicts of interest during the regulatory investigation, Fan said he would not attend regulators meetings, since he also serves as an executive director at the Hong Kong Stock Exchange. But Hong Kong media has noted that Yung will remain in charge of Citic Pacific.